Breakout on the DXY - Is the DXY going higher?What is the DXY?
The DXY (U.S. Dollar Index) measures the strength of the U.S. dollar relative to a basket of six major currencies. A rising DXY indicates a strengthening of the U.S. dollar. This can have significant effects on cryptocurrencies, particularly in the short- and medium-term. Here are some of the key impacts:
What does an increase in the DXY mean for crypto?
Negative Impact on Crypto Prices: As the dollar strengthens (rising DXY), the relative value of other assets, including cryptocurrencies, can decline. Many cryptocurrencies are priced in U.S. dollars, so when the dollar strengthens, the same amount of dollars may buy fewer crypto assets, leading to price declines for cryptocurrencies.
Safe-Haven Movement: When investors flock to the U.S. dollar due to its rising strength, they may move capital out of riskier assets like crypto and into the dollar or U.S. Treasury bonds, which are seen as safer. This can cause a decrease in demand for cryptocurrencies.
What can we conclude from the 4-hour DXY chart?
The DXY experienced a rapid decrease this month, resulting in a drop from 108 to 103. However, after this sharp decline, the price has shown some bullish signs.
First: The price action kept making lower lows while the RSI made higher lows, resulting in a bullish divergence.
Second: The price action formed a specific pattern commonly found at the end of a downtrend. This pattern shows that the price is making small lower lows and lower highs, suggesting market exhaustion and a possible upside move toward the resistance zone.
The resistance zone aligns with the golden pocket Fibonacci level, indicating it could be a strong rejection level.
It is highly probable that the DXY could make an upside move to the resistance zone and golden pocket after breaking this bullish chart pattern.
What do we see on the daily timeframe?
The price dropped rapidly from 108 to the support zone at 103. After consolidating at this level, the price made a slightly lower low, while the RSI made a higher low. This indicates a bullish divergence on the daily timeframe. Before this drop, the DXY formed a typical bearish chart pattern known as Head and Shoulders (H&S). The neckline of the pattern coincides with the resistance zone on the 4-hour timeframe and the golden pocket. This suggests that it may be a difficult level to break.
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